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Rating Action:

Moody's assigns A2 IFSR to Hanwha General; outlook stable

 The document has been translated in other languages

20 Jun 2018

Hong Kong, June 20, 2018 -- Moody's Investors Service has assigned an A2 insurance financial strength rating (IFSR) to Hanwha General Insurance Co., Ltd. (Hanwha General).

The rating outlook is stable.

This is the first time that Moody's has assigned a rating to Hanwha General.

RATINGS RATIONALE

Hanwha General's A2 IFSR reflects its solid capitalization, improving profitability outlook and diversified distribution channels with strong focus on tied-agency and cross-selling channels. These credit strengths are offset by the highly competitive non-life market in Korea, which has made it challenging for Hanwha General, a mid-sized non-life insurer, to further improve its product mix and lower its expense ratio consistently.

The rating also incorporates one notch uplift from its standalone credit profile of a3, reflecting the ownership by and support from its parent Hanwha Life Insurance Co., Ltd. (Hanwha Life, financial strength A1 stable) that enhances Hanwha General's branding, distribution, capital position, operating efficiency and financial flexibility.

Hanwha General's solvency position was solid, with its local risk-based capital (RBC) ratio improved to 180.7% as of year-end 2017, up from 153.1% as of year-end 2016. The improvement was the result of a KRW198 billion capital injection through a new shares issuance, as well as by stronger earnings in 2017.

The more stringent capital requirements of K-ICS could reduce Hanwha General's capital buffer. However, Moody's expects the insurer will continue to strengthen its capitalization by improving its underwriting profitability and/or raising capital through debt issuances.

The insurer's underwriting performance has been improving; the risk loss ratio of its long-term policies down to 94.4% for 2017 from 97.0% for 2016. This was driven by an upward adjustment of the risk premium for medical indemnity products, an increase in persistency of profitable in-force policies and the launch of specialized healthcare products with higher margins. The loss ratio of its auto line also declined from 84.8% in 2016 to 81.3% in 2017, owing to its profit-driven underwriting policy.

In addition, the insurer's cost of liabilities declined to 3.32% in 2017 from 3.57% in 2015, allowing it to maintain spread gains during the same period, despite a downward trend in its investment yields amid the low interest rate environment.

Although the insurer derives over 75% of its premiums from long-term products, Hanwha General's exposure to the negative spread associated with high guarantee policies is low when compared to other life insurers with a relatively low level of average guarantee rates.

Hanwha General has established diversified channels with a particular focus on proprietary channels in its distribution mix. Tied agents and cross-selling agents are the largest premium contributors, generating 51% of total premium income for 2017. Hanwha General. The insurer also distributes through general agency (29%), direct sales channels (16%) and bancassurance (4%).

The insurer has been increasing its investments to infrastructure and real estate projects in the past few years. Although government or government-owned companies guaranteed most of these projects, these investments have brought higher concentration and liquidity risks to the insurer.

In addition, the increasing trend of medical expenses covering under medical indemnity policies, which account for one-third of the insurer's long-term risk premium, exposes the insurer to claim inflation risk.

RATING DRIVERS

Moody's would consider upgrading Hanwha General's rating if: (1) its market position and scale improve significantly, thus closing the gap with its leading peers in the industry; (2) its high-risk asset leverage declines to below 75% of shareholders' equity on a sustained basis; (3) its profitability improves, for example with the risk loss ratio of its long-term business falling below 90% consistently; and/or (4) its capitalization improves, with its RBC ratio rising above 200% and its adjusted capital-to-assets ratio rising above 8%, both on a sustained basis.

On the other hand, Hanwha General's rating could be downgraded if: (1) its profitability deteriorates significantly, for example with its return on capital falling below 6% consistently; (2) its high-risk asset leverage rises above 175% of shareholders' equity on a sustained basis; (3) its capital adequacy declines significantly, for example with an adjusted capital-to-assets ratio below 6% or RBC ratio below 150% consistently; (4) the parent's adjusted financial leverage rises above 25% consistently; and/or (5) Hanwha Life reduces its stake in Hanwha General or shows signs of weakening support, or if Hanwha Life's ratings are downgraded.

The methodologies used in this rating were Life Insurers published in May 2018, and Property and Casualty Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Hanwha General Insurance Co., Ltd. was established in April 1946 and was listed on the Korean Exchange in June 1975. Domiciled in Korea, Hanwha General provides various insurance products including automobile, property, casualty, marine, as well as long-term insurance and annuities.

Hanwha General is 51.4%-owned by Hanwha Life, the second largest life insurer in Korea. Hanwha General is part of Hanwha Corporation (to check with issuer for the full legal name), a conglomerate which has business in various industries, including insurance, chemicals, explosive/defense and energy.

At 31 December 2017, Hanwha General's total assets and shareholders' equity totaled KRW14.9 trillion and KRW1.2 trillion on a consolidated basis.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Wing Kei Frank Yuen
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Yat Man Sally Yim
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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